By Cory Roberson, Principal at RIA Review and RIA Consults
Who’s my regulator------- State?
SEC? FINRA? DOL?
NASAA?
With the complexities of
multi-jurisdictional regulations, firms are tasked with interpreting the application
of regional uniform securities/advisors
act rules and national guidelines
from the SEC, NASAA, FINRA (formerly NASD) and/or the DOL.
State
(Advisors/Uniform Securities) v. SEC (Advisors/Securities) Rules
Advisors can dig a little
deeper into the regulatory landscape by taking a holistic look at the
differences and similarities between jurisdictions. Overall, most advisory firms must follow a
combination of its home office state rules, other state provisions, and/or SEC
provisions.
Differences
When assessing advisory
level compliance, many state provisions mirror those of the SEC Investment
Advisors Act of 1940 with some exceptions:
Financial Statements
For instance, California
requires its advisors to: (1) submit annual (or monthly) financial statements
when firms hold discretionary authority over funds and/or (2) provide ADV
disclosures when/if directly debiting fees.
Both cases are examples of enhanced
custody provisions that differ from the SEC, which generally does not
require annual financial statement submissions from its advisors who hold
discretionary authority of client accounts. Florida and New York also hold annual
financial statement reporting requirements for their registrants.
Another noteworthy
difference is that many states hold net worth minimum or bonding requirements
for firms.
Similarities
Registration/notice filing requirements
Both State and SEC registrants
agree on registration and notice filing provisions (Rule 204-1 and similar
state rules). Both regulators require firms and at least one qualifying
principal (IAR) to register in the state the firm’s principal office is located.
Be aware of regulatory
changes. Advisors who were previously
exempt from registration may find that it is now required to register as an
advisor or notice file its firm under a specific jurisdiction.
Firms may be required to
register (its firm and/or its “branch office”) if it publicly holds itself out
as an advisory firm and/or its crosses state de minimis thresholds for number of clients served.
Solicitors (whether
internal or “third party” marketers) may be required to register depending on
state jurisdiction.
Custody Rule
The SEC and most states agree
on the definition for the Custody Rule (Rule 206(4)-2) and similar state
rules). Generally, firms who hold
custody of client assets are required to either submit annual audited
statements and/or be subject to a surprise examination.
Some states, such as
Colorado, deviate from the Custody Rule’s overall surprise audit provision in
favor of a “gatekeeper” provision.
Annual Reviews
The SEC and some state
registrants* have annual review requirements as described below:
·
Florida Rule 69W
600.0014(3)/SEC 2042 (books/records) - annual review of policies and
procedures.
·
Washington
Rule WAC 460-24A-120 - annual review of
policies and procedures.
see annual review blog for more information.
ADV Form 1A Changes
Recent Form ADV 1A changes apply
to all firms. see Form ADV 1A changes blog for more
information
FINRA: FINRA has no direct authority over solo advisors with no
broker-dealer affiliations or brokerage activities. In these cases, FINRA is simply the
administrator of the web CRD/IARD system.
The SEC, NASAA (for test administration), and state securities
regulators use this system as a part of its’ filing/registration
requirements.
DOL: For all advisors who serve
retirement plan clients, the Department of Labor (DOL) and SEC both enforce the
Employee Retirement Income Securities Act (ERISA). They are now in the process
of redefining the term “Fiduciary” in a piece of legislation that shares the
hotly contested term’s namesake (“Fiduciary Rule”).
For now, the DOL is
delaying its full enforcement of the Fiduciary Rule in a move likely influenced
by the SEC’s call for interpretation into its broader implications.
NASAA: On the state level, the North American Securities Administrator
Association (NASAA), a self-regulatory organization, provides general guidance,
Uniform Securities Act guidelines, administration of testing, and
resources.
Creating a Compliance reporting map to categorize regulations
Lastly, after gathering a
list of regulatory requirements, we recommend that firms categorize their compliance
duties based on their business model. Once
achieved, firms should also make sure these requirements are included in their policies
and procedures manuals.
See the example below
Corporate Level
|
Firm Level
|
Rep Level
|
Securities Level
|
Fund Level
|
Corporate
Documents
LLC/C-Corp
Securities
|
Registered
investment Advisor (RIA)
|
Investment
Advisor Representative (IAR)
Registered
Representative (Hybrids)
|
Securities
issuer
Initial
Public Offering
Initial
coin Offering
Private
Placements
|
Registered
Fund (i.e. open/closed end funds
Private
Fund (registration or exemption)
|
Don’t be caught by
surprise. We recommend contacting our consulting arm to discuss your
needs.
Compliance and Business Management
FIN Compliance (FINCompliance.io) is a consortium of compliance services including: RIA Consults-Roberson Consults Group, a compliance consulting firm, RIA Review, a compliance-management software tool (SaaS), B-D Review, a RIA/Broker-Dealer compliance management software tool, and FINLancer is a business management portal featuring: E-signature tools; Invoicing integration, Vendor Directory, continuity directory*, business client document portal, and more (available by Q3 2019). Access all services on one site: FINCompliance.io.
Impact
FIN Missions (FINmissions.com) provides business support group sessions for other entrepreneurs. In addition, Cory has volunteered for more than fifteen youth programs in locations such as like S. Korea, China, S. Africa, Thailand, and India.
No comments:
Post a Comment